June 4, 2019
Mark Newton CMT, Newton Advisors, LLC
SPX Cash Index
Support: 2762-3, 2743-5, 2732-4
Resistance: 2800-1, 2840-2, 2864-8
Thursday Technical Webinar 5/30/19- SPX, TNX, Crude, Dollar
My CNBC interview from Thursday 5/29 on SPX, and 3 stocks to favor
SPX - (3-5 Days)- Bullish- S&P down to levels where shorts can be covered and longs can initiated between SPX 2744 down to 2722, expecting a rebound in stocks back up to 2800
EuroSTOXX 50- Bullish- Monday's Bullish reversal after having hit new lows to recoup nearly all of last Friday's losses is thought to be a positive. Movement up to 3360 likely and over should drive a larger rally back to 3450 and then 3514
HSCEI- Bearish- Dollar pullback should be near support and a rally in USD likely coincides with HSCEI breaking support for a final pullback down to 10067- Still looks early for a rally though this would change over 10600.
Trading Longs: COPX, QURE, AON, MMC, KHC, SPXC, MNST, ICE, AVB, AEP, ED, WEC
Trading Shorts: SIG, WYNN, LVS, URBN, HTZ, BBBY, KSS, EMR
Yesterday's weakness in Technology put a damper on SPX recovery efforts, though breadth finished positive despite the mild drawdown and SPX prices look to be in a zone now both from a price and time perspective where a bounce can happen. The combination of excessively bearish sentiment coupled with near-term oversold conditions is important, and should create a decent risk/reward perspective with SPX at current levels and maximum drawdown from here holding prices above 2722.
Most of yesterday's gains came from the Materials sector on the falling Dollar, which has little overall impact on SPX given its weighting. However, other sectors like Energy, Utilities, Staples all rallied over 1%, while both Industrials and Financials also managed to churn out gains of nearly +0.70%. So not as bad of a move sector-wise as might have been thought given a mildly down market. Interestingly enough, breadth was positive despite a 2% down day in the NASDAQ 100 index, and the broader market was able to absorb Tech's decline and hold up in fairly resilient fashion. While Tech woes might continue a bit longer this week, other sectors should come in to help buoy SPX, and provide an oversold bounce.
The one broader concern, however, is the degree to which the 2year yield continues to plummet as Rate cut Bets continue to pile up. The ongoing trade war uncertainty and evidence of some deteriorating economic conditions have led to expectations of more than 50 bps of cuts in 2019, a dramatic about-face from earlier this year. Near-term,, this has caused the Yield curve to steepen dramatically, though 2year yields look to be near support and are unlikely to get down under 1.70% in the short run.
Long Copper- HG_F- Expecting an upcoming trendline breakout at 270 that carries prices up to 285-290. COPX might be considered for non-commodity traders at 18.71
Short XLC- expecting pullback to 44.50 and then a max near 43.70- stops at 47.05
Short EEM with targets at 39, then 38.04 maximum
Short XOP with expectations of a move to 25.50 and then 23.89 to challenge Dec 18 lows
Long XLU targeting 59.85-60 - Buy Weakness at 58
Additional charts and thoughts below.
S&P- Yesterday's mild decline failed to do much damage, but took SPX momentum further into near-term oversold territory right near lows made in March of this year. Counter-trend exhaustion could be in place by Tuesday's close, and SPX is now into a zone of support where pullbacks likely start to reverse back higher. While Technology remains a weak link, other sectors seem to be helping in a way that's keeping markets afloat, even with a 2% decline in NDX. One should consider covering shorts and assuming longs, with the thought of pressing bets over 2800.
"FANG" stocks weakened substantially in Monday's trading, with FB, GOOGL and TWTR all falling more than 5% in trading. This group is facing ongoing Antitrust concerns, and as the daily charts show, the recent decline has proven relentless since peaking in late April, erasing nearly 70% of the prior rally. Near-term, no real support exists until under 2200, and the NY FANG index (10 members- BABA, AAPL, NVDA, NFLX, BIDU, TSLA, AMZN, TWTR, GOOGL and FB) looks to weaken more over the next 2-3 days before stabilizing and turning back higher. In the short run, this might prohibit SPX from making much headway higher, but is thought to be a temporary headwind only at this time. One should hold off on buying dips in these stocks technically until Thursday/Friday of this week.
Copper looks to be on the verge of attempting a counter-trend rally after its recent pullback to test former lows from this past January. The metal has done a complete "Round-Trip" after moving up to test 300 and now having erased much of this move in less than two-months time. Counter-trend exhaustion, however, is now present in Copper in the July contract, and movement over 270 would be quite bullish, supporting movement up to 285-290 initially. Interestingly enough, this move comes on the heels of increasingly more bearish economic data and Trade war uncertainty that's fueling rate cut bets. Technically, a move over 270 would be quite encouraging in suggesting further rallies.